VW Starts First Europe Corporate Bond Sale of This Year

By Katie Linsell -
Jan 7, 2013

Volkswagen AG (VOW) sold Europe’s first
corporate bonds of the new year as company borrowing costs
relative to government debt fell to the lowest since April 2008.

The German carmaker was the region’s biggest issuer of debt
last year, selling 9.8 billion euros ($12.8 billion) of bonds,
and it has 6.5 billion euros of notes maturing this year,
according to data compiled by Bloomberg.

The relative yield on European corporate bonds over
government debt has fallen to 137 basis points, according to
Bank of America Merrill Lynch’s Euro Corporate index, compared
with 301 basis points at the start of 2012. The new issuance
market has been dominated by banks so far this year and
UniCredit (UCG) SpA was in the market today with a 1 billion-euro
covered bond deal.

“Given the strength of the market, Volkswagen is kicking
the ball early and issuing with tight pricing,” said Geraud Charpin, a fund manager at Bluebay Asset Management Ltd. in
London, which oversees $47 billion. “Autos are regular issuers
so they have lots to do over the year, and the market is
favorable.”

Europe’s biggest carmaker sold 1 billion euros of seven-
year bonds that were priced to yield 78 basis points more than
the mid-swap rate, according to data compiled by Bloomberg.
Marco Dalan, a spokesman for Volkswagen, said the funds will be
used to refinance existing borrowings.

Credit Derivatives

In credit derivative markets, the cost of insuring European
bank debt fell to the lowest since April 2011 after central bank
officials agreed to delay a liquidity rule that could have
strangled interbank lending. Credit-default swaps linked to
UniCredit and Intesa Sanpaolo SpA (ISP) were the best-performing in
the Markit iTraxx Europe index linked to 125 investment-grade
companies.

Lenders will be allowed to use an expanded range of assets
including some equities and securitized mortgage debt to meet
the so-called liquidity coverage ratio, or LCR, after a deal was
struck by regulators meeting in Basel, Switzerland yesterday.

UniCredit, Italy’s biggest bank, raised 1 billion euros
from seven-year covered bonds that were priced to yield 150
basis points more than swaps. It was the Milan-based bank’s
first covered bond transaction in euros since August, data
compiled by Bloomberg show.

Default swaps on the lender dropped 22 basis points to 258
and contracts on Intesa Sanpaolo declined 12 to 239, both the
lowest since July 2011, according to data compiled by Bloomberg
at 3 p.m. in London.

The Markit iTraxx Financial index linked to swaps of 25
banks and insurers dropped three basis points to 122, and is
down from 278 basis points at the start of last year. The Markit
iTraxx Europe index fell 1.5 to 102.5.

Abbey National Treasury Services Plc, a unit of Banco
Santander SA, is also raising 1 billion euros today from bonds
due 2018, its first deal in the currency since February,
according to data compiled by Bloomberg. The notes will be
priced to yield 97 basis points more than the mid-swap rate,
according to bankers.